FUNDAMENTALS

OF
ACCOUNTANCY,
BUSINESS AND
MANAGEMENT
2
 Basic Documents
and
Transactions related
to
Bank Deposits
❖identify the types of bank accounts
normally maintained by a business
❖differentiate a savings account from a
current or checking account
❖prepare bank deposit and withdrawal
slips
❖identify and prepare checks
❖identify and understand the contents of a
bank statement
SAVINGS ACCOUNT
It is a type of account which
accumulates interest on the
deposits made. Typically, money
deposited in this account is for
long term savings. It is an
interest bearing account.
Savings Accounts
• These are intended to provide an incentive for the
depositor to save money.
• The depositor can make deposits and withdrawals
using the form provided by the bank.
• Banks usually pay an interest rate that is higher than
a checking account or a current account.
• Some savings accounts have a passbook, in which
transactions are logged in a small booklet that the
depositor keep
• Some savings accounts charge a fee if the balance
falls below a specified minimum
CHECKING ACCOUNT
A checking account facilitates easier
access to cash for daily operational needs
through the issuance of checks
A company may open a checking
account and deposit funds in it. The bank
will provide the company with a check
book which the company can use it in
paying for their transactions.
Checking or Current Accounts
• Money held under a checking account can be
withdrawn through issuance of a check
• Banks usually allows numerous withdrawals
and unlimited deposit under this type of
account.
• The interest rate for checking account is
usually lower as compared to a savings
account.
• The account holder or depositor of a
checking account is normally provided at the
end of the month a bank statement showing
all the deposits made, checks paid by the
bank, and the balance of the account.

• The depositor is given easy access to the

funds as compared to a savings account
A withdrawal slip and deposit
slip are written orders to the
bank. These slips are used to
take out money or to put in
money to the depositors
account.
Withdrawal Slip
Without a withdrawal slip, the bank will not allow
you to get money from your account. The
required information in the withdrawal slip are:
• Account Name - the name of the depositor
• Account Number – the unique identifier given by
the bank for every account maintained
• Date of the withdrawal
• Type of account - savings or current
• Currency
• Amount to be withdrawn - the amount that the
depositor wishes to withdraw from his account. The
amounts in words and in figures are indicated.

• Signature of the Depositor – this is the most important

part in the withdrawal slip. The signature is a proof that
the depositor is authorizing the bank to get money from
his account. Usually, the bank compares the signature in
the withdrawal slip against the signature in the bank
records submitted during the opening of the account.
Deposit Slip
The bank provides deposit slip that the depositor
will fill up every time the depositor will put
in money to his account.
The usually required information in a deposit slip
are:
• Account Name – this is the complete name of the
depositor that is reflected in the records of the
bank. If it has a pass book, the account name is
indicated on first page inside the passbook.
• Account Number – this is a
unique identifier of the account
maintained by the depositor.
• Date of Deposit
• Type of Account
• Currency
• Amount in words and in figures – the amount
that the depositor wishes to put into his account.
The amount to be deposited maybe in form of
cash or check. If it is a cash deposit, the
breakdown of the cash is usually listed in the
deposit slip if it is a check deposit, the details of
the checks are indicated in the deposit slip, for
example: Issuing Bank, Address of the Issuing
Bank, date of the check and the amount
 A check is a document that orders a bank to pay a specific
amount of money from a person's account to the person in
whose name the cheque has been issued.
The person writing the cheque, the drawer, has a
transaction banking account where his money is held. The
drawer writes the various details including the monetary
amount, date, and a payee on the cheque, and signs it,
ordering his bank, known as the drawee, to pay that person or
company the amount of money stated.Checks are a type of bill
of exchange and were developed as a way to make payments
without the need to carry large amounts of money. The check
number is usually indicated in the upper right portion of the
check
The following are the parties involved in a
transaction that uses check as medium of
exchange:
• Drawer, the person or entity who makes the
check
• Payee, the recipient of the money
• Drawee, the bank or other financial
institution where the cheque can be presented
for payment
EVALUATION:
1. What is a bank statement and discuss the
importance of a bank statement to a
depositor.
2. What is a check and who are the parties
involved in the issuance of a check? Discuss
the role of each party.
 BANK RECONCILIATION
It is a process where the balances in the
company’s accounting records for their checking
account is matched to the bank statement. This is
to ensure that both the company and the bank
records have the same balances. Discrepancies in
the balances may be due to the following
reconciling items.
DEPOSIT IN TRANSIT
Deposit in Transit pertains to deposit made and
recorded by the company but have not yet been recorded
by the bank. DIT is a reconciling item in the records of
the bank.

Deposit in Transit include:

a.Collections already forwarded to the bank for deposit
but too late to appear in the bank statement.
b.Undeposited collections or those still in the hands of
the depositor. In effect, these are cash on hand
awaiting delivery to the bank for deposit
OUTSTANDING CHECKS
It pertains to checks already written and recorded by the company but
have not yet been recorded by the bank. Outstanding checks are reconciling
items in the records of the bank.
Outstanding checks include:

a. Checks drawn and already given to payees but not yet presented for
payment.
b. Certified Checks – A certified check is one where the bank has stamped on
its face the word “accepted” or “CERTIFIED” indicating sufficiency of
fund.
When the bank certifies a check, the account of the depositor is
immediately debited or charged to insure the eventual payment of the
check.
Certified checks should be deducted from the total outstanding checks
(if included therein) because they are no longer outstanding for bank
reconciliation purposes
BOOK RECONCILING ITEMS
CREDIT MEMO
It is additions made by the bank to the account of the company. The
bank already recorded the increase in the account of the company, but
has not yet added this increase in their books. An example of this is a
payment directly made by customers to the bank account of the
company. Credit memos are reconciling items in the records of the
company.
a. Notes receivable collected by bank in favour of the depositor and
credited to the account of the depositor.
b. Proceeds of bank loan credited to the account of the depositor.
c. Matured time deposits transferred by the bank to the current
account of the depositor.
DEBIT MEMO
This are the deductions made by the account of the company. The bank already made the
deduction on the account of the company, but the company has not yet recorded such.
Examples of these could be service charges of the bank and NSF checks. Debit memos are
reconciling items in the records of the company.
a. NSF (no sufficient fund) – these are checks deposited but returned by the bank
because of insufficiency of fund. The other name is DAIF or drawn against insufficient
fund.
b. Technically defective checks – checks that are deposited but returned by the bank
because of technical defects such as absence of signature or countersignature,
erasures not countersigned, mutilated checks, conflict between amount in words and
amount in figure.
c. Bank service charge – these include bank charges for interest, collection, check book
and penalty.
d. Reduction of Loan – these pertains to the amount deducted from the current amount
of the depositor in payment for loan which the depositor owes to the bank and which
has already matured.
ERRORS
Errors could be a mistake made by either the bank or
the book. Adjustments should be made by the party whom
committed the error.
BANK RECONCILING ITEMS
The DIT has been added to the bank balance because this
deposit has already been made and recorded by the
company but has not been recorded by the bank.
On the other hand, the outstanding checks are deducted
from the bank balance because these checks have already
been drawn and recorded by the company but has not yet
been recorded by the bank
BOOK RECONCILING ITEMS
The CM has been added to the book balance because
this represents a note collected by the bank on behalf of
the company. Because this has already been added by the
bank on the account of the company, it should also be
added in the records of the book.
On the other hand, the debit memo represents an NSF
check (NO SUFFICIENT FUND CHECK) previously deposited
by the company to the bank. Since this has already been
deducted by the bank, the same should be deducted in the
records of the company.
BANK RECONCILIATION
Bank reconciliation statement is a control measure to
check the balance between the records of the company and
the records of the bank about their cash account.

RECONCILING ITEMS for the records if the company(book)

include credit memo, debit memo, and book errors.

On the other hand, reconciling items for the bank are

Deposit in Transit, Outstanding Checks and bank errors
BANK RECONCILIATION
For the month of MMMM/DD/YYYY
Unadjusted Bank Balance XXX
Add: Deposit in Transit XXX
Less: Outstanding Checks (XXX)
Total XXX
Adjusted Bank Balance XXX

For the month of MMMM/DD/YYYY

Unadjusted Book Balance XXX

Add: Credit Memo XXX
Less: Debit Memo (XXX)
Total XXX
Adjusted Book Balance XXX
FORMS OF BANK RECONCILIATION
A. Adjusted balance method
Under this method, the book balance and the bank balance are
brought to correct cash balance that must appear on the balance
sheet
B. Book to bank method
Under this method, the book balance is reconciled with the bank
balance or the book balance is adjusted to equal the bank balance.
a. Bank to book method
Under this method, the bank balance is reconciled with the
book balance or the bank balance is adjusted to equal the book
balance
NOTE: The first method is preferred over the other two.
 PROFORMA RECONCILIATION
ADJUSTED BALANCE METHOD
Unadjusted Bank Balance XXX
Add: Deposit in Transit XXX
Less: Outstanding Checks (XXX)
Total XXX
Adjusted Bank Balance XXX

Unadjusted Book Balance XXX

Add: Credit Memo XXX
Less: Debit Memo (XXX)
Total XXX
Adjusted Book Balance XXX
BOOK TO BANK METHOD
BOOK BALANCE XXX
ADD: CREDIT MEMOS XXX
OUTSTANDING CHECKS XXX XXX
TOTAL XXX
LESS: DEBIT MEMO XXX
DEPOSIT IN TRANSIT XXX XXX
BANK BALANCE XXX

BANK TO BOOK METHOD

BANK BALANCE XXX
ADD: DEPOSIT IN TRANSIT XXX
DEBIT MEMO XXX XXX
TOTAL XXX
LESS: OUTSTANDING CHECKS XXX
CREDIT MEMO XXX XXX
BOOK BALANCE XXX
APPLICATION
TRUE or FALSE.
1. Depositin Transit are deposits made and recognized both
in the bank and book records.
2. Outstanding Checks are checks recorded by the book but
are not yet recognized by the bank.
3. Notecollected by the bank on behalf of the company is
considered as a debit memo.
4. Depositsrecognized by the book and not yet recognized
by the bank is a deposit in transit.
5. Errors
committed by the book should be corrected in the
records of both the bank and the company.
ANSWERS
1.FALSE
2.TRUE
3.FALSE
4.TRUE
5.FALSE
Company Records of Purity Company for the month of March:
February ending balance P 35,000
March Ending Balance P 99,000
DATE RECEIPTS DISBURSEMENT
2 10,000
5 35,000 (check 101)
8 30,000
11 15,000
15 10,000 (check 102)
22 45,000
23 2,000
28 10,000
30 15,000
31 5,000 (check 103)
13,000 (check 104)
Bank Statement for the month of March:
Date Withdrawals Deposits Balance
February 35,000
2 10,000 45,000
6 35,000 (101) 10,000
9 30,000 40,000
11 15,000 55,000
15 10,000 (102) 45,000
22 45,000 90,000
23 2,000 92,000
24 10,000 (note 102,000
collected)
25 12,000 (NSF) 90,000
28 10,000 100,000
For the data given above, the following bank reconciliation can be
made:
For the month of March 2016
Unadjusted Bank Balance P 100,000
Add: Deposit in Transit (March 30) 15,000
Less: Outstanding Checks 103 5,000
104 (18,000)
13,000
Adjusted Bank Balance 97,000

Unadjusted Book Balance P 99,000

Add: Credit Memo (note collected by the 10,000
bank)
Less: Debit Memo (NSF Check) (12,000)
Adjusted Book Balance 97,000
APPLICATION
Prepare a bank reconciliation statement. Assuming the
following data from Dos Company for December 2016
Unadjusted Book Balance P 84,000

Unadjusted Bank Balance 100,000

Deposit in Transit 15,000

Outstanding Checks 8,000

Interest Credited to Account 28,000

Service Charge 5,000

Prepare a bank reconciliation statement assuming the
following data from Fhey Company for October 2016
Deposit in Transit P 15,000
Outstanding Checks 25,000
Credit Memo 20,000
Debit Memo 10,000
Bank Balance, unadjusted 80,000
Book Balance, unadjusted ?
Prepare a bank reconciliation statement assuming the
following data from John Company for November 2016
UNADJUSTED BANK BALANCE P 65,000
UNADJUSTED BOOK BALANCE ?
DEPOSIT IN TRANSIT 11,000
OUTSTANDING CHECKS 10,000
CREDIT MEMO 2,000
DEBIT MEMO 500
Determine the following:
1. Unadjusted Balance of the Book
2. Adjusted Bank Balance
3. Adjusted Book Balance
Define the following:
1. Checking Account
2. Savings Account
3. Deposit in Transit
4. Outstanding Checks
5. Credit Memo
6. Debit Memo
7. Bank Reconciliation
8. Service Charge
9. NSF Check
10.Reconciling Items